Exhibit 99
CONTACT:
James C. Rowan, Jr.
Office: (860) 722-5180
FOR IMMEDIATE RELEASE
HSB GROUP, INC.
REPORTS THIRD QUARTER RESULTS
HARTFORD, Conn., OCTOBER 24, 2000 - HSB Group, Inc. (NYSE: HSB) today reported a
net loss for the third quarter of $18.0 million or $.62 per share, compared to
net income of $18.8 million or $.64 per share, for the third quarter of 1999.
Results for the third quarter include an extraordinary charge of $.34 per share
associated with the early extinguishment of debt. The results also include a
charge of $20.7 million pretax or $.58 per share with respect to the special
risk insurance business generated by the company's London-based affiliate,
Engineering Insurance Limited. This charge includes provisions for future claims
and certain other expenses as well as a non-tax-deductible write-down with
respect to the goodwill impairment of that business.
Chairman, President and Chief Executive Officer Richard H. Booth said: "While
our domestic commercial equipment breakdown insurance business continues to
perform very well, the Global Special Risk business has been adversely affected
by a challenging environment. The actions we are taking position our special
risk business appropriately while we work to achieve improved pricing, terms and
conditions."
Also contributing $.53 per share to the loss for the quarter was adverse loss
experience in the company's Global Special Risk segment. The claims associated
with this experience occurred after July 1, 2000, and totaled $23.2 million
after reinsurance recoveries of $24.5 million. The majority of the gross loss
experience related to international risks. The insurance combined ratio for the
quarter was 121.5 percent excluding the $20.7 million pretax charge.
Net Engineering Services revenues for the quarter increased 26.5 percent over
the third quarter of 1999. The Engineering Services margin was 6.5 percent
compared to 3.6 percent in 1999. On September 29, 2000, HSB Group, Inc sold its
51 percent interest in Integrated Process Technologies (IPT) to Enron Energy
Services Operations, Inc. In a related transaction, HSB completed the sale of a
call option the company held on an additional 29 percent interest in IPT to the
other 49 percent holder in IPT. HSB recognized a pretax gain of $9.8 million or
$.22 per share from these transactions.
Income from investment operations was $31.3 million compared to $30.0 million in
the third quarter of 1999. Realized gains for the quarter were $.35 per share in
2000 and $.30 per share in 1999.
On August 18, 2000, American International Group, Inc. (NYSE: AIG) and HSB
Group, Inc. (NYSE: HSB) announced that they had entered into a definitive
agreement whereby AIG would acquire 100 percent of the outstanding stock of HSB
Group, Inc. The proposed transaction with AIG is progressing as expected. A
special meeting of HSB Group, Inc. shareholders to consider and vote on the
proposed transaction will be held on Monday, November 6, 2000. At the request of
AIG, a public hearing on the matter has been scheduled by the Insurance
Commissioner of the State of Connecticut for November 8, 2000.
On September 7, 2000, HSB Group, Inc. announced an agreement with Employers
Reinsurance Corporation (a subsidiary of General Electric Capital Securities
Services, Inc.) to redeem $300 million in convertible capital securities for a
price of $315 million plus accrued interest. This action resulted in an
extraordinary loss of $.34 per share. On September 14, 2000, AIG loaned $315
million to HSB the proceeds of which were used to redeem the convertible capital
securities. The five-year term loan to HSB was made in connection with the
previously announced definitive agreement for AIG to acquire 100 percent of the
outstanding stock of HSB.
HSB Group, Inc., the parent company of The Hartford Steam Boiler Inspection and
Insurance Company, is a global provider of specialty insurance products,
engineering services and management consulting. The Hartford Steam Boiler
Inspection and Insurance Company was founded in 1866 to provide loss prevention
and insurance to businesses, industries and institutions. For more information
about HSB, visit its web site at www.hsb.com.
This news release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that are management's
estimates, assumptions and projections and are not guarantees of future
performance. Forward-looking statements involve known and unknown risks and
uncertainties. These and other important factors, including those mentioned in
various Securities and Exchange Commission filings made periodically by the
company, may cause the company's actual results and performance to differ
materially. Investors and prospective investors should read this news release in
conjunction with the company's most recent Form 10-K, Form 10-Q and other
documents filed with the Securities and Exchange Commission.
Summary of Operations
In millions, except per share amounts
Quarter Percent Year-To-Date Percent
Ended September 30, Change Ended September 30, Change
2000 1999 2000 1999
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Gross earned premiums $157.2 $200.6 -21.6% $515.7 $616.3 -16.3%
Ceded premiums 51.4 107.9 219.2 333.4
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Insurance premiums $105.8 $ 92.7 $296.5 $282.9
Claims and adjustment expenses 74.0 44.5 150.9 120.7
Policy acquisition expenses 23.3 21.6 64.8 65.5
Underwriting and inspection expenses 31.3 24.4 88.7 72.6
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Insurance operating gain (loss) $(22.8) $ 2.2 $ (7.9) $ 24.1
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Loss ratio* 70.0% 48.1% 50.9% 42.7%
Expense ratio* 51.5% 49.6% 51.7% 48.8%
Combined ratio* 121.5% 97.7% 102.6% 91.5%
Engineering services revenues $ 38.7 $ 30.6 26.5% $115.9 $ 86.0 34.8%
Engineering services expenses 36.2 29.5 107.8 80.3
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Engineering services operating gain $ 2.5 $ 1.1 $ 8.1 $ 5.7
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Engineering services operating margin* 6.5% 3.6% 7.0% 6.6%
Investment income, net of related interest expense $ 16.0 $ 16.5 -3.0% $ 46.5 $ 48.8 -4.7%
Realized investment gains 15.3 13.5 38.8 30.8
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Income from investment operations $ 31.3 $ 30.0 $ 85.3 $ 79.6
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Interest expense 1.5 0.6 2.6 1.6
Provision for international large risk business charges 20.7 - 20.7 -
Gain on sale of interests in Integrated Process Technologies, LLC 9.8 - 9.8 -
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Income (loss) before income taxes and distributions on capital
securities of subsidiary trusts $ (1.4) $ 32.7 $ 72.0 $107.8
Income taxes 2.6 9.3 27.1 31.6
Distribution on capital securities of subsidiary trusts, net of
tax 4.1 4.6 13.5 13.6
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Income (loss) before extraordinary item $ (8.1) $ 18.8 $ 31.4 $ 62.6
Loss on extinguishment of capital securities of subsidiary
Trust II, net of tax 9.9 - 9.9 -
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Net income (loss) $(18.0) $ 18.8 $ 21.5 $ 62.6
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Earnings (loss) per common share-assuming dilution:
Income (loss) before extraordinary item $ (0.28)** $ 0.64 $ 1.08 $ 2.10
Net income (loss) $ (0.62)** $ 0.64 $ 0.74 $ 2.10
Dividends declared per common share $ 0.44 $ 0.44 $ 1.32 $ 1.28
Average common shares outstanding and common stock
equivalents 28.8 34.7 29.1 34.6
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*Computation excludes rounding
**Net loss per share computed using average common shares outstanding
Summary of Financial Position
In millions, except per share amounts
September 30, 2000 December 31, 1999
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Assets
Cash and short-term investments $ 118.8 $ 126.5
Fixed maturities, at fair value 486.3 489.8
Equity securities, at fair value 384.1 381.8
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Cash and invested assets 989.2 998.1
Reinsurance assets 625.4 850.3
Insurance premiums receivable 78.5 104.4
Engineering services receivable 39.5 39.1
Fixed assets 53.5 58.2
Other assets 220.7 213.1
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Total assets $ 2,006.8 $ 2,263.2
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Liabilities
Unearned insurance premiums and ceding commissions $ 259.1 $ 420.1
Claims and adjustment expenses 735.3 782.3
Total borrowings 342.6 66.6
Other liabilities 201.3 208.7
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Total liabilities 1,538.3 1,477.7
Company obligated mandatorily redeemable
capital securities of subsidiary Trust I
holding solely junior subordinated deferrable
interest debentures of the Company,
net of unamortized discount 105.0 109.0
Company obligated mandatorily redeemable
convertible capital securities of subsidiary
Trust II holding solely junior subordinated
deferrable interest debentures of the
Company - 300.0
Shareholders' equity 363.5 376.5
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Total $ 2,006.8 $ 2,263.2
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Shareholders' equity per common share* $ 12.56 $ 12.95
Based on common shares outstanding of 28.9 29.1
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*Computation excludes rounding